Ambev S.A.

Good morning, good afternoon, and thank you for waiting. We would like to welcome everyone to UMBAV's second quarter 2023 results conference call. Today with us, we have Mr. Giange De Sachi, CEO for UMBAV, and Mr. Lucas Lira, CFO and Investor Relations Officer. As a reminder, a live presentation is available for downloading on our website, ri.umbav.com.br, as well as through the webcast link of this call. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After MBAP's remarks are completed, there will be a Q&A section where we kindly ask that each participating analyst asks only one question. At that time, further instructions will be given. Should any participant need assistance during this call, please press Start and Zero to reach the operator. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of a management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Unbev and could cause results to differ materially from those expressed in such forward-looking statements. I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature. In a less otherwise stated, percentage changes refer to comparisons with second quarter 2022 results. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Embaft's normal activities. As normalized figures are non-GAAP measures, the company discloses the Consolidated Profit, EPS, Operating Profit, and EPI TDA on a fully reported basis in the earnings release. Now, I'll turn the conference over to Mr. Giorgio Deissati. Mr. Giorgio Deissati, you may now begin your conference.

Hello, everyone. Thank you for joining our Q2 earnings call. Q2 was all about consistency. Top-line momentum persisted, with net revenue up 20%. EBITDA grew 34% at a consolidated level and 20% ex-Argentina, with Brazil growing 29%. International operations continued to recover, with CAC and Canada delivering EBITDA growth and last with steady momentum. Operational leverage continued to come back, with gross margin expanding 170 basis points and a beta margin expanding 300 basis points. And although net income declined given last year's one-off tax credit, cash flow from operating activities increased $1.2 billion. So we end H1 having delivered over 23% net revenue growth, 37% EBITDA growth, and 310 basis points of EBITDA margin expansion, and well positioned for H2. So let's take a closer look at performance by geography, starting with Brazil, which continued to lead the way. In Brazil beer, commercial momentum remained resilient. Top line grew 10%, with volumes declining 2.5%, due mainly to a soft industry. However, despite the decline in industry, premiumization trends continued. Our premium brands grew volumes in the mid-30s, and we gained market share in the segment according to our estimates. And just to put things into perspective, this year-to-date volumes of our premium brands grew 180% versus that same period of 2019. In addition, the disciplined execution of our revenue management initiatives, combined with positive brand mix, led to net revenue per hectolitre growing nearly 13%. Our brand building efforts continued to pay off. Brand health indicators of focus brands improved again, both sequentially and versus last year. And our brands also added 4 million fans since the pre-pandemic period, according to our estimates. And we were awarded 13 Lions in the Cannes Festival this year. Brahma brought home five awards, Budweiser four, and Zed Delivery was also recognized for the first time in the event with one award. And finally, EBITDA growth accelerated to almost 30% this quarter. In addition to the sustained commercial momentum, EBITDA performance was positively impacted by two things. First, lower growth in terms of costs. Cash costs per hectolitre, excluding non-AMBEV marketplace products, grew only 4.6%, thanks to a combination of our tailwinds from FX and commodities hedges. a lower than expected inflation and unhedged commodity prices as well as a more efficient supply chain given a better production and distribution footprint. And second, by lower distribution and administrative expenses. In Q2, we began to cycle last year's increase in diesel And our efforts to optimize our business by streamlining and integrating our B2B, DTC, and FinTech with the rest of the organization continued to make great progress. During 2022, we developed a comprehensive plan to establish a new operating model better suited for Ambev to work as a platform. And the results are starting to show more and more, not only in terms of more collaboration across the company, but also in terms of a leaner and a more agile organization. Turning to Brazil NAB, I would highlight three points. First, top line grew 7.5%, thanks to net revenue per hectolitre growing 10%. given our revenue management initiatives and a positive brand mix contribution. This offset the 2.2 declining volumes, which suffered mainly from a soft drink industry. Second, our brands continued to perform well in the premium, health and wellness, and energy beverages markets. with Pepsi Black outperforming once again, growing about 170% and now representing about 19% of our Pepsi Cola volumes. And Guaraná, Antarctica also was recognized at Cannes for its Women's World Cup campaign. And third, EBITDA grew nearly 25%, with gross margin expanding 490 basis points and EBITDA margins expanding 310 basis points. Now, let's cover our international operations, which, as I mentioned before, continued to recover. Starting with CAC. Despite the 2.8% volume contraction, top line grew almost 5%, led by the Dominican Republic, which is the most important country in the region, representing historically around 80% of our EBITDA results on average. Not only did macro conditions improve sequentially, but also we continued to put our operations back on track. For instance, volumes of the Presidente family rose 3% in the quarter, while inventory at wholesaler level normalized and price execution remained consistent. And after four consecutive quarters of decline, EBITDA grew almost 8% year over year. And both gross and EBITDA margins expanded 100 basis points. What's more, year-to-date organic EBITDA growth is above 2021 level, which was our best performing year in CAC. We still have work to do here, but happy to see CAC recovering and in a sustainable way. In last, top line grew roughly 82%. Volumes were slightly positive, growing 0.6%, led by Chile and Paraguay. But it's also worth noting that our beer volumes in Argentina grew low single digits, despite the short-term volatility and challenges in the country. Speaking of Argentina, beer gained share of stroke as a category. Our above-core brands continued to gain weight in our volumes. We were also awarded with eight Lions at the Cannes Festival, this year with Kilms and Stella Artois campaigns. But Laz is not just about Argentina. The rest of the region delivered a solid quarter, with double digits, top line and bottom line growth, and gross margin and EBITDA margin expansion. Paraguay and Chile were the highlights with great performance across the board. All in all, Lazebita grew 110% with gross margin expanding 160 basis points and EBITDA margins expanding 380 basis points. And finally, Canada. Top line performance was flat with 6.6 net revenue per hectolitre growth and a 6.2 volume decline as we underperformed a softer industry and faced a tough comp in Quebec. Having said that, our above-core brand's health indicators continue to improve in the country, especially on our premium brands. Corona and Mi Club Ultra continue to grow volumes, supporting estimated market share gains in premium and core plus, respectively. And the beta grew a little over 4%. with gross margins contracting 70 basis points, but the beta margins expanding 120 basis points. Well, with H1 behind us, a few words on H2, starting with what's more clear to us. in brazil our commercial strategy is in good shape given the health of our brands the better mix the execution in bees both in terms of client nps and expansion of marketplace and in the delivery our cost outlook for the year has improved we are updating our guidance and currently expect brazil beer cash cogs per hectolitre to grow between 2.5% and 5.5% for the full year. And we should continue to benefit from less pressure in terms of distribution, and administrative expenses during the second half of the year for the reasons I previously mentioned. And outside Brazil, what I would highlight is CAC, where year-over-year performance should continue to improve given our sequential recovery and as we lap last year's soft H2. in terms of where we have less visibility i would say the two main points are industry volumes in brazil where we will continue to closely monitor disposable income drivers and overall operating environment in argentina which has been and will continue to be a point of attention All in all, although we may still face some degree of volatility and short-term challenges varying market by market, I believe it's fair to say that our strategy has been working for a while now, and I am confident in our team's ability to continue executing it going forward. And finally, we will continue to work together. towards delivering growth and profitability in H2, as well as a better organic EBITDA growth in 2023 than the 17.1% that we delivered in 2022. We closed H1 with over 37% EBITDA growth, so we are well on track to deliver another year of continuous and consistent improvements. With that, thank you very much. Let me hand it over to Lucas.

Thank you, Jean. Good morning, good afternoon. Since you already covered the main performance indicators, and since Q2's performance was consistent in terms of what should not change and what should change this year versus 2022, I will focus on net income, cash flow generation, and taxes. Starting with taxes, two relevant updates here. First, in early July, Brazil's House of Representatives approved the tax reform on indirect taxes, which is intended to simplify the different federal, state, and municipal taxes that are currently levied on consumption, while not increasing the overall tax burden, thus creating conditions for Brazil to deliver better economic growth. The legislative debate now moves to the Senate, which will analyze the proposed changes during the course of H-2. Since the legislative process is ongoing, and since the draft legislation approved by the House is still subject to change, it's still premature to comment in more detail on what to expect going forward and potential impacts on the industry and our business. Having said that, we welcome any tax reform that reduces the complexity of the Brazilian tax system and that does not increase the total tax burden, which is already among the highest in the world. As for direct taxes, including potential changes to the deductibility of the IOC, despite continued speculation, there has not been any material concrete development on the legislative front. We will keep the market informed accordingly. And second, in terms of tax litigation in Brazil, As of June 30, 2023, our tax disputes classified as having a possible but not probable chance of loss reduced by nearly 5 billion reais compared to December 31, 2022, as a result of favorable decisions we obtained in several different disputes. We expect the administrative and judicial courts to continue ruling on certain of our tax positions during H2, such as tax assessments received in connection with the deductibility of the IOC, the deductibility of goodwill amortization expense, as well as the case related to the ICMS substitute in the taxable basis of the PIS and the COFINS. For further details, please refer to item 26 in the notes to our financial statements. We will keep the market up to date should there be any material developments, and as mentioned before, we believe the merits of our legal positions will ultimately prevail. Now let's turn to our Q2 financial performance, starting with net income. Normalized profit totaled nearly 2.7 billion reais in Q2, which represents a 13% decrease versus last year. Two points worth making here. First, last year's figure was positively impacted by roughly 1.2 billion reais in one-off tax credits recognized in Brazil. If you disregard such one-off and related effects, our net income would have grown 18% year over year. And second, although net finance results totaled an expense of about R$1 billion, which was around R$500 million worse than last year, losses from derivative instruments used pursuant to our hedging policy, which has been a pain point historically, actually declined close to R$400 million. This reduction is a result of lower USD exposure and lower carry costs in Brazil and Argentina. As you may recall, since Q3 2022, we've been reducing the financial hedges in Argentina and our net finance results have been positively impacted since then. This should continue to be the case in Q3 and to a lesser extent in Q4 as we lap the reduction in exposure and hedging. As for cash flows, good news here. Cash flow from operating activity totaled approximately 3.4 billion reais in the quarter, which is 1.2 billion reais above last year. As a reminder, our cash flow from operating activities is highly impacted by the seasonality of our business and heavily skewed towards the second half of the year. For instance, in the last seven years, over 80% of our cash flow from operating activities was generated in H2. Similarly, working capital tends to be stronger in H2. However, due to its nature, it can be more volatile on a quarterly basis. Q1 is typically the weakest performance of the year, and working capital improves sequentially throughout the year. So let's break down Q2. If you look at it from a geographic standpoint, the biggest year-over-year improvement came from Brazil, followed by Las, Argentina and Chile, and Caqui. In terms of working capital, receivables improved about 900 million compared to last year, driven by lower tax credit recognition in Brazil versus Q2 2022, as well as volume performance in CAQ, Argentina, and Canada. Inventory is improved by 1.3 billion reais compared to last year, mainly driven by a reduction in days of inventories year over year, not only in terms of finished goods, but also packaging and raw materials in Brazil, Argentina, and in Canada. And as for payables, results were pretty much flat when compared to last year, driven mostly by Brazil and Canada. In Brazil, non-income tax payables, which had a negative year-over-year impact in Q1, had a positive effect in Q2, given our end-of-quarter sales performance. And this improvement was offset by lower payables in Brazil, mostly given the reduction of inventories and lower cap expense. And in Canada, we were up against a tough comp on non-income tax payables, as H1 2022 taxes were deferred to H2 due to COVID. However, this adverse impact should subside through the end of the year. All in all, following the improvements in Q2, cash flow from operating activities in the first half of the year ended ahead of H1 2022. And if we take a step back and look at longer-term trends, it's important to highlight three points. First, our receivables as days of sales have been declining over time, especially in Brazil, mostly given channel mix. Second, our inventories as days of COGS have been increasing given a combination of higher level of safety stock to navigate the supply chain disruptions caused by COVID-19 and sustained service level, more vertical operations, and a greater SKU assortment. And third, when we look at our payables as days of COGS, CAPEX, and SG&A, although the current figure is below the peak in 2020, it's currently over 130 days on average. Large suppliers have payment terms longer than 90 days, and they represent more than 55% of our spend, whereas small suppliers represent around 30% of the spend and have payment terms of around 30 days. Before moving to Q&A, I would like to invite everyone to join our ESG update, which we plan to host virtually in November. Stay tuned for more details. With that, let me turn it back to the operator.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star key followed by the one key on your touchtone phone now. If at any time you would like to remove yourself from the questioning queue, please press star then two. Please hold while we collect questions. The first question comes with Lucas Tejeda with JP Morgan. Please go ahead.

Hi, everyone. Thanks for taking my question. My question is I just wanted to understand a little bit more what drove the reduction in the COGS guidance. If it was a mix driven or maybe you're just too conservative before. I'm asking because I just wanted to understand if there's any reading into these for next year, if the company is becoming even leaner, more efficient, or the mix is improving in a way. That gives you a cost advantage. Thank you.

Okay, Lucas, thank you very much for the question. Yeah, so Brazil beer cash flow execs marketplace in Q2 grew 5.1 versus last year. It was, like, better than we anticipated, right? And it was mostly driven by inflation and brewery. performance, partially offset by effects and commodities. In H1, we are on the number of 10.1% versus last year. And then forecasting moving forward for the year, we reduced the guidance, right, to 2.5 to have the full year in between 2.5 and 5.5 in the full year. uh a part of it was mixed uh that was better than expected uh yes so a piece of it a piece of it was non-hedged commodities so mouth barley energy overall uh in that in a place better than than we expected but we are uh really uh seeing that we are getting more efficient on our footprint faster than we expected. We have some projects going on, unlocking innovation capabilities in our suppliers to produce locally bottles that in the previous year we were importing. Our breweries are bigger and better suited to roll out the innovations that we made in the previous years. So there is a piece of it that is efficiencies in supply and distribution footprints that they will stay.

Hi, Lucas here. Just to add a few more points. Since you talked about potential implications for 2024, I think there are two points worth noting. Number one, as you know, inflation has been coming down across markets, and that, again, to the extent that sustains, should be supportive going forward. And number two, when you think about our hedging policy, granted there's still a lot of hedging to be done this year, through the end of the year, but if you take the picture today, what we're seeing is the BRLFX equation as a tailwind once again, aluminum hedges as a tailwind once again, and barley as a tailwind, which has not been the case in 2023. So I think that's different and that's improving so far, right, going into 2024. What's still ahead is the devaluation of the Argentine peso, which, as we mentioned in our prepared remarks, is a point of attention. But net-net, we're seeing less cost pressure going into 2024 so far as compared to where we were at this time last year.

Perfect. Thank you, guys.

The next question comes with Rob Odenstein with Evercore. Please go ahead. The next question comes with Tiago Duarte with PTG Pactual. Please go ahead.

Yeah, hello, Lucas. Hello, Jean. Thanks for the call. Yeah, my first question actually relates to the industry in Brazil, Brazil Beer. You mentioned in the release, and Jean made a comment about, you know, as being one of the points to watch as we go into the second half of the year. So just if you could, Jean, elaborate a little bit more on what you're seeing at the margin, particularly on two things. Number one, how you expect that to affect the seasonality of the volumes throughout the year. I mean, since the pandemic started, we saw Q3 volumes looking particularly strong for you guys in the industry in general. So just if you could discuss a little bit on that and how that implicates volumes for the second half of the year. And secondly, how that affects the company's pricing decision. I mean, when you took over as CEO, one of the One of the key things that I think you have been saying for a few years now is how you guys are paying a lot of attention to how pricing should not impact the category and the industry volumes in general. And now that industry seems to be a little bit weaker, how that affects that behavior from your guys' point of view, I think it would be an important discussion. And secondly, actually a follow-up on the comment I think Xiaoming made on mix with regards to how that affected the guidance, the reduction in the cost guidance for the year. How that change took, you know, how that change in the mix was. I mean, it was because the sense that we have is that you guys had a much bigger impact of RGB in the quarter. That could have been the reason for the lower cost. I just wanted to see if we are reading things correctly here. If it was really an increase in RGB penetration relative to one-way presentations, that would be great to understand as well. Thank you.

Okay. Thank you very much, Duarte. Let me try to get the industry first. Then we go to talk about price, and then we go to mix overall to talk about cost and prices in general, okay? So, Duarte, overall, this year has been a more stable year if you look at on a de-seasonalized way month by month than the previous years because of the pandemic. So long-term wise, we are very confident about the industry in Brazil. Industry is structurally better, trading up, consumers really evolving in the right direction. The category has been relevant for the young generation. So we are very confident long-term wise with the industry. But when we look back what happened in the pandemic and now that we went out of it, what we access is it was that during the pandemic frequency, went up, right? So we see consumers really looking to have beers on Tuesdays, on Wednesdays at home to relax. So the frequency, that was a normal pattern in a country maturity two that is upgrading to maturity three. Frequency usually goes up. the pandemic accelerated this process, we are seeing a residual effect on frequency that stays today. What we are looking at the industry, and the industry is a little bit softer, is about intensity, okay? It's less about the disposable income. It is more about the euphoria moments in our access was higher, people going back to the streets in one occasion, really in an euphoric mode, going back. So this piece, it is the piece that is what we call the tough one that we had with the euphoria when the country had the masks down in March, that it is something that we have to be taking out these effects Frequency residual looks good. Beer in the basket of consumers penetration looks good. So somehow this is, so we are confident with the structural levers. We know there is this effect of the euphoria after the reopening. So that was about the industry. I think we still gonna see a little bit of this piece of intensity in this previous years. That's why we are cautious somehow moving forward, but cautious more because of this effect, less very optimistic about the structurality of the changes that the Brazilian market is going through. Okay? I think this is one point. Talking about pricing, overall, you know that we've been mentioned that we have been very agile and nimble in terms of making decisions on pricing, much more granular. than we have before, really looking for this equation of having a sustainable balance between an industry that can grow, a category that can be inclusive, and the net revenue per hectolitre growth. So somehow consider that inflation is decelerating. We're going to continue to monitor the industry health, the macro environment in 2023. We're going to remain flexible, really watching on disposable income and elasticities to make the decisions on pricing moving forward. All the decisions that we do is really to maximize overall this equation of volumes and prices and generate better bottom line. And talking about mix, there is a – so RGB, they are solid. So they are doing well. Penetration is going up. Zed delivery is helping it. We just went with a big campaign with RGB to the whole Brazil about how sustainable and how more affordable it is. So we are happy with this strategy. So a piece of it was mixed, but a piece of it that we don't talk that much is really that my supply footprint is really more efficient. During the pandemic, volumes up, supply chain constraints, importation. So there is this piece that once things are more stable, we are being able to have a better planning, better negotiations, focus our suppliers on long-term initiatives, on innovation to help us to be more efficient. So there is a piece of it that is really coming for a more efficient supply chain.

Thank you so much.

The next question comes with Carlos Laboy with HSBC. Please go ahead.

Yes, thank you. Hello, everyone. Given all the growth that you've had in bees and the emphasis on refillable bottles on premise, might you be able to give us some insight on how this might be shifting your channel mix? and how those other channels are growing relative to modern trade. And also, is there any insight you can give us or anything you can share with us in terms of share of volume versus share of value and how that's been behaving for you as well? Thank you.

Okay, Laboi, thank you very much for the questions. So, yes, you know that we have this strategy that this is a really relevant piece of our strategy, and this is really about opening up the company for all the customers that we have in Brazil. So we entered the pandemic with 750,000 customers buying. We left the pandemic with more than 1 million. So that was a lot of customers that connected with the platform and small retailer in general that really had no access to or my sales rep was not there, or we're buying from another channel, and then we begin to go really direct. So this is an important piece of the strategy with returnability on it. And yes, we are seeing, in terms of mix, a good resilience on the small retailer that continues to perform well. And when we compare big retailers, we are seeing a lot of initiatives on the big retailers to manage better their cash, to reduce inventories, And so there is a piece of it that the channel is readjusted. Inventory is the big format, but we are seeing really small formats really doing well. The on-premise really, really doing well. So there is another piece on the equation that is that our third-part system that is plugged into bees in this countryside of Brazil, there is northeast, north, So, there is a lot of growth on the countryside of Brazil together with Brazil growing in the agriculture. So, we are seeing a big part of our growth coming from these regions through bees, but through our third partners. So, that's a piece of the equation too. And when I look at share of value and share of volume, I would say, Laboy, that they are – directionally stable when we look in the previous two years, one year. They are directly moving in the same direction. So we don't see that share of value is deteriorated. So the piece of the upgrade on the brands that we have on the high end, in the short term, this 35% growth that we are having on our high end, looks like it will begin to give some additional gains on share of value when we compare with share of volume. But overall, they are pretty much the same. with the gains in line in the previous year.

So is it fair to say that modern trade has become a smaller component of your channel mix? We can say that. We can. Okay.

Thank you.

The next question comes with Isabella Simonato with Bank of America. Please go ahead.

Thank you. Good afternoon, Jean and Lucas. Thank you for the call. I have two questions. One is quickly a follow-up on the beer market in Brazil, right, and especially on the pricing side. Are you guys seeing any movement, right, from competition or even competition in a more granular basis, right? A pricing deceleration. Has cost improved, right, for most of the players? Any more of a rational or aggressive behavior on that side? That's the first question. And the second question is on the last business. We also saw some price acceleration on last. I was wondering if you could give us a little bit more of a detail on that front what you expect going forward. And if you could provide also details that you already seen from the new approach towards Argentina, right, in terms of cost management and having more of a local sourcing across the board, how has, what sort of impacts are you already seeing? And finally, if that, has already been impacting working capital in a more material way. That's it on my side. Thank you.

Thank you, Isabella. Coming back to the industry, what we are seeing is really an industry that is structurally better. I mentioned about the consumers, the frequency, the intensity, a little bit about the the the tough comp that we have with this euphoria uh in the previous year of the masks down but overall uh the underlying uh uh drivers of the industry they are healthy and when we go to the competitive landscape uh what we are seeing is that somehow uh there is more rationality on that so we were the industry it was uh industry that suffered a lot in the previous uh two years with the currency devaluation with commodities going up big time so margins were very compressed so what we have seen overall is like a overall industry that is more uh with more rationality uh in general so that's what i could i could mention about the competitive landscape Talking about LAS, Lucas.

Yeah, no, hi, Isabel, Lucas here. So regarding LAS, I would break it down into two pieces, okay? Piece number one, Argentina, and piece number two, Bolivia, Paraguay, and Chile, okay? Because these are, although Argentina is the biggest country, when you combine the three others, it's irrelevant. It's a material portion of the total LAS business, so it's worth mentioning. So starting with Argentina, kind of the new approach towards how to create value in a sustainable way in Argentina in the current environment, I think the short answer is we're happy with the results so far. When you look at the net effect of less hedging in terms of bottom line impact and cash flow generation, we have, like, positive improvements in both, right? So even though costs continue to increase, the less hedging that we do ends up having a net positive impact in our net income in the country, which is much better than the past. And number two, we're generating better cash flows in Argentina as compared to the past, okay, in U.S. dollars. So I think the strategy has been working so far. We think it's the right strategy. The team has managed to execute it extremely well, but we need to keep at it. It's a volatile market, so we need to continue to be on our toes, okay? As for Bolivia, Paraguay, and Uruguay, I think Bolivia is all about recovery, right? Bolivia was... was one of the two markets that suffered the most with COVID and took the longest to come back. But I think 2023 has been the year where Bolivia is finally coming back and contributes to the growth of the region. Paraguay recovered sooner, and the good news is that it's kept momentum. So we're very happy with the progress in the performance in Paraguay consistently over the last two, three years. In Chile, I would say there has been a step change in our operation. We decided to invest in local production to increase capacity. We decided to partner with Andina and Embodon and Ebonor to distribute our products, giving us better coverage throughout the country. And with our portfolio, right, skewed towards core plus and premium with great brand health performance year after year, that combination has led to a massive swing in EBITDA and cash flow generation in Chile so far this year. So we're very happy with how Chile is trending, and year over year, it's been a relevant impact, really step-changing Chile's contribution to TULAS and to AMEF.

That's very clear. Thank you.

The next question comes with Alanis with Santander. Please go ahead.

Hello, everyone. Thank you so much for taking my question, John and Lucas. I'm going to expand or dig deeper a little bit on the directionally stable market share answer and the rationality of the competition really quickly. I mean, we all know that, I mean, in the Brazilian bear market, there's three players. You are the leader, and then the number two and the number three. And there's this perception that the number two player is doing very well. And they even said that the volumes were positive on the second quarter and so forth. So could you help us understand better these dynamics in terms – is all the share that you're gaining really coming from the player number three? And that's the first question. And the second question is, congratulations on all the awards for the brands, but could you expand a little bit more in terms of which indicators – in which, yeah, what can you tell investors to give more comfort besides the awards that the brands and the strategy of the brand portfolio is the right one, particularly versus the player number two? Thank you.

Okay, Alan. Thank you very much for the question. So, yeah, so I think our volumes, if you do the math, They were good volumes when we compared the selling volumes with the competitors, right? And on a market share basis, so what we mentioned in the previous call was that we had looking really at the sellout market shares. market share is that we were on a stable level on Q1. And then what we have seen this Q2 in 2023 is that we accelerated as we gained compared with Q1. two points, 200 basis points. But the truth is that during the euphoria and the masks down in the pandemic, we gained a little bit more than that in the Q2 of 2023. So sequentially we are gaining this year, but we have a huge peak. in April and May of the last year. And what I can tell you is that June, we are again above the previous years. So sequentially gaining a lot, but it was last year was very strong. But we feel that we are accelerating and we're going to entry the Q3 in a good starting point, entry point in terms of market share. And talking about brands, I'm super excited about this performance, right? So it's not the first quarter that I'm mentioning 30s, 30s, 30s on the high end. So the brands are really performing. Corona is doing great. Spotting is a huge success, doing very well. Brahma, we had this effect of Brahma double mouth. It grew in the in-home occasion, and then when consumers come back to their own trade. They went back to Shop da Brahma. There is really the franchise original a little bit too. But so overall original Shop da Brahma growing a lot. So... our brand portfolio. I'm very excited about this. If you look at a KPI that I mentioned here and there with you about the lovers. So we do this research with consumers and we ask about which brands they love. And when we add all our brands of our portfolio that they are mentioned, that they are loved, by the consumers. So, in this KPI, we gained 4 million new consumers in this, comparing this H1 2023, comparing with the pre-pandemic, the 2019. So, 4 million consumers mentioning that they love one of our brands, that they were not loving, like, in 2019, in 2020. So I'm very excited about our performance in January. Our brand portfolio is much healthier and stronger than before. And really excited about it. DTC is helping. Zed Delivery is helping it, helping us with insights, with direct to consumers communication transaction. help us a little on that. But somehow, so this feeling, this number of consumers that they mention that love our brands is really a KPI that really excites me and I really follow a lot. So I think it's pretty much it.

Got it. Thank you so much.

Thank you. The next question comes from Tiago Bortolussi with Goldman Sachs. Please go ahead.

Yes. Hi. Good afternoon, everyone. Thanks for taking my question. Hi, Gian. Hi, Lucas. I'd also like to double-click and discuss a little bit more your top-line dynamics in Brazil gear. You mentioned a couple of times your premium and super-premium portfolio growing at 30s, which is unquestionably remarkable, while your consolidated volumes in Brazil were down by 2.5%, right? So within the core and the economy portfolios, how, you know, does this portfolio mix adapt to this minus 2.5? This is the first part of the question. And in the second one, obviously, we understand there is seasonality, right? But if I look to your average price per hectolitre in Brazil, XBs, there was a slight contraction quarter on quarter, right? It's a 3% quarter on quarter contraction with your mix arguably improving, right? So how do we adapt on this portfolio composition, the sequentially weaker prices and how this compare to your true rate strategy so far in the year? Thank you very much.

Okay, I'll get the first one. I will ask you to... to repeat the second one first. So, basket-wise volumes, the big drag that we have uh so somehow the the core went uh a little bit in line with with the with the industry with our performance the core but the drag was really the value segment uh really were the brands that uh we were 35 percent down uh and and then we have uh core in line with our performance, and then the over-deliver on the high end, it was material, the 35%. So the value was really the point of attention here, but this is something that we kind of designed to happen like that. So we really want to upgrade the the market for the core brands and then the core plus and then the high end. So we are seeing a lot of traction specifically on the high end with this strategy that we are doing. And then you asked about the net revenue of business. I got confused. Can you ask it? No, no. Sure.

Thanks. Thanks, John. It's clear. So your mix is improving, right, not only year on year, but I guess also sequentially because in the first quarter you also had the core probably growing, right? Now, if this is true and your mix throughout the year is improving, how this add up to your average prices, right? Because if I look to your average prices for beer X the marketplace, right, it's down by 3% quarter on quarter. If our mix is improving, would this imply that you're being eventually a little bit more aggressive on discounts?

uh so let me try to to find this number that uh that my prices are uh uh sequentially down uh uh tiago for sure discounts no okay so that's that's not we are seeing uh what happened usually they can uh in sequential prices they have a little bit of seasonality even though we have uh the performance on the segments but there is this seasonality of northeast uh south losing performance north northeast and north getting more representative as as the winter comes and then uh so the the footprint usually makes some varieties on the sequential numbers that we have. So I would attribute more to the footprint mix, the overall seasonality. Our revenue management is really, really solid. So the level of discounts, they are very low in general. So when you compare with the pre-pandemic levels, it's way lower. below is stable and very controlled. So I would, so my point would be more to understand the footprint seasonality, the region seasonality, a little bit of the channel seasonality, then when we go really to further regions, as I mentioned, that they are growing with two wholesalers, there is a little bit more on the cost of distribution that goes through wholesalers. But no, discounts, no.

Clearly, Jean. If I may, a final one. If I look to the true rate only, right, so eventually price adjustments and hikes, were there anything to notice that you implemented in the quarter?

so so so in the past we had this strategy on prices that we had one big price hike uh per year and then we digest it after and stay so now we are more much more nimble and granular uh so business helping us on that so i think we are pretty much uh doing what we have been doing so really look at the consumer uh uh willingness to pay disposable income elasticities and do the granular strategy that we have been doing for a while now. So nothing more than that to mention. That's super clear.

Thank you very much.

The next question comes with Rodrigo Alcântara with UPS. Please go ahead.

Yeah, thank you very much for taking my question. So, a lot has been asked about beer, right? So, maybe we can comment a bit about Benzio Navi. If you can help me understand the slight decline in volumes, right, in the industry, right? Just, you know, had some troubles understanding the number compared to, you know, what the Coca-Cola bought to support it on the segment. You just said Pepsi performing okay, right? Energy drinks, okay. Perhaps it could be the Verona brand having some issues there. Maybe you can comment on that. And also on this, we did see a nice acceleration there in sales growth, 30% if I'm not mistaken, year over year. So just curious if you can comment on how much of your customer wallets in the share of your customer's wallet and how much this increase has been driven by the success of this. Thank you very much.

So let me get NAB first. So NAB is doing, we are very excited about NAB. I think NAB has really made a lot of changes in the previous two years, and it's really set to succeed. The RTM is better. The brands are really performing. The segments that we lead better. They will grow. So we're really excited about the net volumes. I think there are two things that we can mention on this quarter that is something in the short term, right? So it was a very strong quarter last year that we grew a lot last year. But if I would point it out to one thing that it was – a decision and we are learning and testing the segment. And the net revenue per hectolitre of NAVs, they were very strong, right, in this quarter. And maybe I have some opportunities here and there to be more competitive in one channel or in the other, tactical things in the market. Somehow, I think that's an opportunity that we have. So business well set. Pepsi Black is really a success in Brazil. Gatorade is doing very well. So we have two plays in energy. We have Red Bull, we have Fusion. They are really doing well. So somehow I'm very excited about this business. It's like one quarter that we mentioned the volumes, but I'm very excited about top line and brand performance in general and even when I compare with other players. Okay, so can you repeat the second question?

Yeah, sure. The share of your customer's wallet, right, this accelerated quarter by quarter, also year by year. Just wondering how much of your customer wallet you already represent and that's represented and the contribution of this to this potential increase, if any.

Okay, so we don't see that. So the customer wallets, I think, is a blue ocean. It still has a huge opportunity in the marketplace for us to tackle that. So the consumers are there. They are buying. We are just offering a better assortment, better service. So there is still a huge opportunity. If you look at my GMV of these, not the net revenue, but the GMV, because you begin to have, 3P operations. We begin to sell through wholesalers, and then we don't have exactly the net revenue. We have the GMV, and we have a margin in the middle. So if you look at my GMV, we are growing 64%. when we compare with Q2 of 2023. So I think this is doing well, growing. We are reaching 700,000 customers on the market. that bought one product of our marketplace that products that are not produced by mbf so that's a important number that is still growing so somehow i see strength i see customers really asking to us to have more credit limits for them to buy more, to have more options to buy more frequently. So I think that this marketplace strategy is really solid.

John, if I may, just to add one specific opportunity, I think, in the marketplace that's worth highlighting, Rodrigo, is business. As Jim mentioned, we've managed to really take bees across the country through our direct distribution system, through our wholesalers, and that started to make a bigger impact on our overall business, and we're very excited about that. But when you drill down and look, for example, at the number of SKUs per partner that we work with, that's still a relatively low number. So overall, we have hundreds of SKUs in the marketplace, but when you break it down by each partner from the industry, the SKU number is relatively low. So as we strengthen and deepen the partnership with these companies and are able to offer more SKUs from them to the customer, that should also help us continue to grow marketplace and serve better customers.

Thanks for that clarification, Lucas. Thank you, Jen, for the answer.

Ladies and gentlemen, this concludes today's question and answer session. I would like to invite Mr. to proceed with his closing remarks. Please go ahead, sir.

So thank you all who joined our call for your time and attention. The second quarter results were really about consistency. I mentioned in the beginning of the year that we wanted Brazil to keep its momentum, and I think when you look about the bottom line, it's really accelerated. I talked about international operations to rebound, and we are seeing international operations rebounding. And for the remainder of the year, commercial strategy in Brazil is sound. Costs should improve. We didn't mention, but SG&A, there's a lot of projects on SG&A that they are going on. So I'm really excited about having a leaner organization in H2. Very... A good plan that we made in the previous years to reorganize the company as a platform. They are beginning to show up, a company leaner and more collaborative. So costs, cash cogs, and expenses should improve. CAC remains on this recovery path. I think the previous quarters, the worst quarters, the bad quarters were behind us. Argentina is an operating environment that remains volatile, but overall loss is resilient. And finally, we continue to work towards delivering growth and profitability in H2, as well as a better organic EBITDA growth in 2023 than we had in 2022, that it was 17.1%. So thank you very much. See you in October, and have a great day.

That does conclude AMBASS Audio Conference for today. Thank you for your participation. You may now disconnect.